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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q

X      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended March 31, 2012
 
 
      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
 
 
 
Commission File Number 1-31905

CKX Lands, Inc.
(Exact name of registrant as specified in its charter)


Louisiana
 
72-0144530
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
     
700 Pujo Street, Suite 200
   
Lake Charles, LA
 
70601
(Address of principal executive offices)
 
(Zip Code)
     
 
(337) 493-2399
 
 
(Registrant’s telephone number)
 


 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes   x   No   o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes   x   No   o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer      o                                                                             Accelerated filer                       o
Non-accelerated filer        o                                                                             Smaller reporting company     x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes   o   No   x
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 1,942,495
 
 
 

 
 
CKX Lands, Inc.
Form 10-Q
For the Quarter ended March 31, 2012
 
 
Table of Contents
   
Page
Part I.   Financial Information
 
     
Item 1.
Financial Statements  
     
a.
Balance Sheets as of March 31, 2012 and December 31, 2011 (Unaudited)
1
b.
Statements of Income and Comprehensive Income for the Quarters ended March 31, 2012 and 2011 (Unaudited)
2
c.
Statements of Changes in Stockholders’ Equity for the Quarters ended March 31, 2012 and 2011 (Unaudited)
3
d.
Statements of Cash Flows for the Quarters ended March 31, 2012 and 2011 (Unaudited)
4
e.
Notes to Financial Statements (Unaudited)
5-6
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
7-8
     
Item 4.
Controls and Procedures
8
     
Part II.   Other Information
 
     
Item 6.
Exhibits
9
     
 
Signature
10

 
 

 
 
Part I – Financial Information

 
Item 1.           FINANCIAL STATEMENTS
 
CKX Lands, Inc.
Balance Sheets
March 31, 2012 and December 31, 2011
(Unaudited)

   
2012
   
2011
 
Assets
 
Current Assets:
           
Cash and cash equivalents
  $ 4,764,067     $ 4,124,908  
1031 trust account – restricted
    159,003       --  
Certificates of deposit
    501,384       495,625  
Accounts receivable
    307,522       276,217  
Prepaid expense and other assets
    75,763       20,828  
Total current assets
    5,807,739       4,917,578  
Certificates of deposit
    480,000       480,000  
Property and equipment:
               
Building and equipment less accumulated depreciation of $72,490 and $70,818, respectively
    17,942       19,614  
Timber less accumulated depletion of $691,880 and $691,436, respectively
    1,150,465       1,146,743  
Land
    4,396,034       4,431,034  
Total property and equipment, net
    5,564,441       5,597,391  
Total assets
  $ 11,852,180     $ 10,994,969  
                 
Liabilities and Stockholders’ Equity
 
Current Liabilities:
               
Trade payables and accrued expenses
  $ 98,676     $ 58,662  
Dividends payable
    135,974       --  
Income tax payable:
               
Current
    246,370       87,419  
Deferred
    2,028       5,153  
Total current liabilities
    483,048       151,234  
Noncurrent Liabilities:
               
Deferred income tax payable
    231,417       181,818  
Total liabilities
    714,465       333,052  
Stockholders’ Equity:
               
Common stock, no par value: 3,000,000 shares authorized; 2,100,000 shares issued
    72,256       72,256  
Retained earnings
    11,440,975       10,965,177  
Accumulated other comprehensive income
    --       --  
Less cost of treasury stock (157,505 shares)
    (375,516 )     (375,516 )
Total stockholders’ equity
    11,137,715       10,661,917  
Total liabilities and stockholders’ equity
  $ 11,852,180     $ 10,994,969  
 
The accompanying notes are an integral part of these financial statements.
 
 
1

 
 
CKX Lands, Inc.
Statements of Income and Comprehensive Income
Quarters Ended March 31, 2012 and 2011
 (Unaudited)
 
   
Three Months Ended March 31
 
   
2012
   
2011
 
Revenues:
           
Oil and gas
  $ 904,642     $ 295,779  
Agriculture
    25,533       7,726  
Timber
    4,935       3,439  
Total revenues
    935,110       306,944  
Costs and Expenses:
               
Oil and gas production
    65,040       22,988  
Agriculture
    807       507  
Timber
    8,169       9,651  
General and administrative
    101,476       91,656  
Depreciation and depletion
    2,116       20,560  
Total cost and expenses
    177,608       145,362  
Income from operations
    757,502       161,582  
Other Income / (Expense):
               
Interest income
    538       10,193  
Dividend income
    --       4,863  
Gain on sale of land and other assets
    124,000       306  
Net other income / (expense)
    124,538       15,362  
Income before income taxes
    882,040       176,944  
Federal and State Income Taxes:
               
Current
    230,299       44,994  
Deferred
    39,969       148  
Total income taxes
    270,268       45,142  
Net income
    611,772       131,802  
Other Comprehensive Income, Net of Taxes:
               
Change in unrealized net holding gains occurring during period, net of taxes of $508
    --       763  
Other comprehensive income
    --       763  
Comprehensive Income
  $ 611,772     $ 132,565  
                 
Per Common Stock (1,942,495 shares):
               
                 
Net Income
  $ 0.32     $ .07  
                 
Dividends
  $ .07     $ .07  
 
The accompanying notes are an integral part of these financial statements.
 
 
2

 
 
CKX Lands, Inc.
Statements of Changes in Stockholders’ Equity
Quarters Ended March 31, 2012 and 2011
(Unaudited)
 
Quarter Ended March 31, 2012:
                             
   
Total
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Income
   
Capital
Stock
Issued
   
Treasury
Stock
 
December 31, 2011 Balance
  $ 10,661,917       10,965,177       --       72,256       375,516  
Net income
    611,772       611,772                          
Other comprehensive income
    --               --                  
Dividends
    (135,974 )     (135,974 )     --       --       --  
                                         
March 31, 2012 Balance
  $ 11,137,715       11,440,975       --       72,256       375,516  
                                         
 
Quarter Ended March 31, 2011:
                                       
   
Total
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Income
   
Capital
Stock
Issued
   
Treasury
Stock
 
December 31, 2010 Balance
  $ 10,246,245       10,543,924       5,581       72,256       375,516  
Net income
    131,802       131,802                          
Other comprehensive income
    763               763                  
Dividends
    (135,975 )     (135,975 )     --       --       --  
                                         
March 31, 2011 Balance
  $ 10,242,835       10,539,751       6,344       72,256       375,516  
 
The accompanying notes are an integral part of these financial statements.
 
 
3

 
 
CKX Lands, Inc.
Statements of Cash Flows
Quarters Ended March 31, 2012 and 2011
(Unaudited)

   
2012
   
2011
 
Cash Flows From Operating Activities:
           
Net Income
  $ 611,772     $ 131,802  
Less non-cash (income) expenses included in net income:
               
Depreciation, depletion and amortization
    2,116       20,560  
Deferred income tax expense
    39,969       148  
Less non-operating activities:
               
Gain from sale of land and other assets
    (124,000 )     (306 )
Change in operating assets and liabilities:
               
(Increase) decrease in current assets
    79,716       (21,448 )
Increase (decrease) in current liabilities
    40,014       7,989  
Net cash provided from operating activities
    649,587       138,745  
                 
Cash Flows From Investing Activities:
               
Certificates of Deposit:
               
Maturity proceeds
    255,625       --  
Purchases
    (261,384 )     (5,625 )
Securities:
               
Sales proceeds
    --       (4,864 )
Land, timber, equipment and other assets:
               
Sales proceeds
    159,000       166  
Purchases
    (4,666 )     (532,944 )
Proceeds held in 1031 trust account
    (159,003 )        
Net cash provided from (used in) investing activities
    (10,428 )     (543,267 )
                 
Cash Flows From Financing Activities:
               
Dividends paid
    --       --  
Net cash used in financing activities
    --       --  
                 
Net increase (decrease) in cash and cash equivalents
    639,159       (404,522 )
                 
Cash and cash equivalents:
               
Beginning
    4,124,908       5,182,316  
Ending
  $ 4,764,067     $ 4,777,794  
                 
Supplemental disclosures of cash flow information:
               
Cash payments for:
               
Interest
  $ --     $ --  
Income taxes
  $ 71,348     $ --  
                 
Supplemental schedule of non-cash investing and financing activities:
               
Net change in recognized and unrecognized unrealized gains (losses) on available-for-sale securities
  $ --     $ 1,271  

The accompanying notes are an integral part of these financial statements.
 
 
4

 
 
CKX Lands, Inc.
Notes to Financial Statements
March 31, 2012
(Unaudited)

Note 1.      Basis of Presentation

The accompanying unaudited financial statements of CKX Lands, Inc. (“Company”) have been prepared in accordance with United States generally accepted accounting principles for interim financial information.  They do not include all information and footnotes required by United States generally accepted accounting principles for complete financial statements.  Except as described herein, there has been no material change in the information disclosed in the notes to the financial statements included in our financial statements as of and for the year ended December 31, 2011.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included in the accompanying financial statements.

Interim results are not necessarily indicative of results for a full year.  These financial statements and accompanying notes should be read in conjunction with the Company’s Form 10-K for the year ended December 31, 2011 and Form 10-Q for the quarterly period ended March 31, 2011.

Note 2.       Recently Adopted Accounting Pronouncements

In 2012, we adopted Accounting Standards Update (ASU) 2011-05 which requires the presentation of the components of net income and other comprehensive income either in a single continuous statement or in two separate but consecutive statements.  This update eliminates the option to present the components of other comprehensive income as part of the statement of shareholders’ equity.

Note 3.       Disclosures about Fair Value:
 
Securities available for sale and certificate of deposits (securities held to maturity) are valued at fair value.  The Company’s estimated fair values of securities are as follows.
 
   
March 31, 2012
 
    Current     Non-Current     Total  
   
Fair Value
   
Unrealized
Gain/(Loss)
   
Fair Value
   
Unrealized
Gain/(Loss)
   
Fair Value
   
Unrealized
Gain/(Loss)
 
Certificate of Deposits
  $ 501,384       --       480,000       --       981,384       --  
Mutual Funds
    --       --       --       --       --       --  
Total
  $ 501,384       --       480,000       --       981,384       --  
 
 
    March 31, 2011  
   
Current
   
Non-Current
   
Total
 
   
Fair Value
   
Unrealized
Gain/(Loss)
   
Fair Value
   
Unrealized
Gain/(Loss)
   
Fair Value
   
Unrealized
Gain/(Loss)
 
                                     
Certificate of Deposits
  $ 495,625       --       --       --       495,625       --  
Mutual Funds
    --       --       789,907       8,547       789,907       8,547  
Total
  $ 495,625       --       789,907       8,547       1,285,532       8,547  
 
 
5

 
 
CKX Lands, Inc.
Notes to Financial Statements
March 31, 2012
(Unaudited)

Fair value measurements disclosure for securities is as follows.
 
   
March 31, 2012
 
   
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   
Significant
Other
Observable Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
                   
Certificate of Deposit
  $ 981,384       --       --  
                         
Mutual Funds
  $ --       --       --  
 
 
   
March 31, 2011
 
   
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   
Significant
Other
Observable Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
                   
Certificate of Deposit
  $ 495,625       --       --  
                         
Mutual Funds
  $ 789,907       --       --  
 

 
Note 4:       Income taxes:

In accordance with generally accepted accounting principles, the Company has analyzed its filing positions in federal and state income tax returns for the tax years ending December 31, 2008 through 2011 that remain subject to examination.  The Company believes that all filing positions are highly certain and that all income tax filing positions and deductions would be sustained upon a taxing jurisdiction’s audit. Therefore, no reserve for uncertain tax positions is required.  No interest or penalties have been levied against the Company and none are anticipated.
 
Note 5:       Land Sale

During the first quarter of 2012, the Company sold 80 acres of land for $160,000 and reported a gain of $124,000.  This transaction was structured as a “deferred exchange using a qualified intermediary” pursuant to Paragraph 1031 of the Internal Revenue Code (1031 Exchange) for income tax purposes. Due to the 1031 exchange, the gain of $124,000 is deferred for income tax purposes.  At March 31, 2012, the 1031 exchange has not been completed and $159,003 in net proceeds is held by the intermediary and restricted to use by the Company.

 
6

 
 
Item 2.           MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 
Results of Operations

Revenue

Revenues for the first three months of 2012 increased by $628,166 from the revenues for the first three months of 2011.  This change is presented by revenue source below:

   
2012
   
2011
   
Increase / (Decrease)
 
Oil and Gas Revenues
                 
Oil Royalties
  $ 713,175     $ 172,791     $ 540,384  
Gas Royalties
    101,054       73,387       27,667  
Plant Royalties
    62,411       8,275       54,136  
Lease rentals
    28,001       34,229       (6,228 )
Geophysical
    --       7,097       (7,097 )
Timber Revenue
    4,935       3,439       1,496  
Agriculture Revenue
    25,534       7,726       17,808  
Total Revenue
  $ 935,110     $ 306,944     $ 628,166  

Oil and gas revenues are reported to the Company by producers of the oil and gas wells.  The Company’s determination or calculation of the type, quantity and average prices are based on supporting royalty payment detail provided by the producer of the oil and gas wells.   Based on this information, the following schedule summarizes barrels and MCF produced and average price per barrel and per MCF.

   
Three Months
Ended
03/31/12
   
Three Months
Ended
03/31/11
 
Net oil produced (Bbl)(2)
    6,513       1,903  
Average oil sales price (per Bbl)(1,2)
  $ 109.51     $ 90.79  
                 
Net gas produced (MCF)
    25,906       17,746  
Average gas sales price (per MCF)(1)
  $ 3.90     $ 4.14  

Notes to above schedule:
 
(1) Before deduction of production and severance taxes.
(2) Excludes plant products.
 
Based on the producer provided information, the increase in oil and gas royalty revenues was due to new production being brought online in the quarter and the Company receiving royalty payments of approximately $426,000 from that new production.  The remainder of the increase was due to an increase in oil production of approximately 1,459 barrels (Bbl) from existing production and an increase in the average price per Bbl which was offset by a decline in metric cubic feet (MCF) of gas produced of 2,816 and a decrease in the average gas sales price.  Royalty revenue from plants, exclusive of the new production, increased by $7,820 over 2011 quarter.

Both lease rentals and geophysical revenues decreased from the 2011 amounts.  These revenues are not predictable.
 
 
7

 
 
Management believes that current oil and gas activity is driven by the current and forecasted commodity prices and demand for oil and gas.  Management believes that oil and gas activity which includes lease rentals and geophysical as well as oil and gas production will continue to be strong for the next six months.

Generally, timber prices have been depressed for the last several years and the Company has elected to only harvest timber for internal maintenance programs for age class timber and storm protection measures.  Timber revenues are generated from these maintenance programs and management does not see the timber market changing within the next 6 months.

Agriculture revenue increased by $17,808 from 2011.  This increase is due to the timing of farm rental payments which are recorded at the time of payment receipt.  Management does not expect any significant change to agriculture revenue over the next six months.

Costs and Expenses

Oil and gas production costs, primarily severance taxes, increased by $42,052 in 2012. This increase is directly related to higher oil and gas revenues.

Timber and agriculture expenses were relatively flat for the quarter.

General and administrative expenses increased by $9,907 primarily due to legal expenses incurred for routine corporate matters.

Financial Condition
 
Current assets less restricted cash and non-current certificates of deposit total $6,128,735 and total liabilities equaled $714,465 at March 31, 2012.  Management believes existing cash and investments together with funds generated from operations should be sufficient to meet operating requirements and provide funds for strategic acquisitions.

The Company declared another seven cents per common share during the quarter ended March 31, 2012. It is anticipated that the Company will be able to continue paying a seven cents per common share dividend each quarter.  From time to time, the Company may elect to pay an extra dividend.  In determining if an extra dividend will be declared, the Board of Directors will take into consideration the Company’s current liquidity and capital resources and the availability of suitable timberland that has mineral potential.

Issues and Uncertainties

This Quarterly Report contains forward-looking statements.  These statements are based on current expectations and assumptions that are subject to risks and uncertainties.  Actual results could differ materially because of issues and uncertainties such as those discussed below, which, among others, should be considered in evaluating the Company’s financial outlook.

Revenues from oil and gas provide most of the Company’s income.  All of these revenues come from wells operated by other companies from property belonging to CKX Lands, Inc.  Consequently, these revenues fluctuate due to changes in oil and gas prices and changes in the operations of the other companies.
 
Item 3.           Not applicable.
 
Item 4.           CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures

The Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 as of the period covered by this report. Based on the evaluation, performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), the Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by the report.
 
 
8

 
 
Changes in Internal Control Over Financial Reporting

There were no significant changes with respect to the Company’s internal control over financial reporting or in other factors that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the quarter covered by this report.
 

Part II.  Other Information

 
Item 1 – 5.    Not Applicable
 
Item 6.           EXHIBITS
 

 
3.1
Restated/Articles of Incorporation of the Registrant are incorporated by reference to Exhibit (3)-1 to Form 10 filed April 29, 1981.

 
3.2
Amendment to Articles of Incorporation of the Registrant is incorporated by reference to Exhibit (3.2) to Form 10-K for year ended December 31, 2003.

 
3.3
By-Laws of the Registrant are incorporated by reference to Exhibit (3.3) to Form 10-K for year ended December 31, 2003.

 
10
Contract to Purchase and Sell approximately 3,495 acres in Cameron Parish, Louisiana effective July 3, 2007 is incorporated by reference to Exhibit (10) to Form 10-QSB filed August 13, 2007.

 
31.1
Certification of Joseph K. Cooper, President and Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 filed herewith.

 
31.2
Certification of Brian R. Jones, Treasurer and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 filed herewith.

 
32
Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 filed herewith.
 
101.INS**
XBRL Instance
   
101.SCH**
XBRL Taxonomy Extension Schema
   
101.CAL**
XBRL Taxonomy Extension Calculation
   
101.DEF**
XBRL Taxonomy Extension Definition
   
101.LAB**
XBRL Taxonomy Extension Labels
   
101.PRE**
XBRL Taxonomy Extension Presentation
   
** XBRL
Information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
 
 
9

 
 
Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
   
CKX Lands, Inc.
 
       
Date: May 10, 2012
 
/s/ Joseph K. Cooper  
   
Joseph K. Cooper
 
   
President and Chief Executive Officer
 
       
       
Date: May 10, 2012   /s/ Brian R. Jones  
   
Brian R. Jones
 
   
Treasurer and Chief Financial Officer
 
 
 
 
10